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The Broad Market Outlook for 2013

By: Clif Droke | Tuesday, November 20, 2012

In this commentary we'll survey the intermediate-term to longer-term market
terrain. This is especially important since we're about to enter a new year,
which the Kress cycle outlook describes as potentially dangerous from a financial
market and economic perspective.

Investors have had no shortage of worries in November, including uncertainty
surrounding the presidential race earlier this month, the upcoming "fiscal
cliff" on Dec. 31, troubles in the Middle East, and the ongoing euro zone debt
crisis. On the European front, Spain has still not asked for the European Central
Bank (ECB) to purchase its bonds, while the Euro area finance ministers will
not likely to make a final decision to release the Euro 31.5 billion of aid
to Greece until Nov. 26.

In a bull market investors tend to ignore worries and focus on the positive
news, namely expanding corporate profits. Bull markets on average tend to run
about 3-4 years before becoming exhausted. The bull market which began in March
2009 was accompanied by a major recovery in corporate profits, which was part
of a feedback loop that propelled equity prices higher in the last 3+ years.
Corporate profit momentum is in the process of revering now, which means investors
have one less positive to consider when evaluating equities.

From an investor psychology perspective, what does it mean when fear and worry
feeds on itself and creates downside momentum? It means we're entering a bear
market, which was fated to happen at some point after the 4-year cycle peaked
in October. On an interim basis it was confirmed when the NYSE Composite Index
(NYA) decisively broke below its 60-day moving average.

Another indication that conditions have turned bearish on an intermediate-term
basis is seen in the series of internal momentum indicators known as HILMO
(Hi-Lo Momentum). As the name implies, HILMO is based on the rate of change
in the daily 52-week highs and lows on the NYSE. Whenever all the main components
of HILMO (short-, intermediate-, and longer-term) are in synch to the downside
it shows that conditions have turned decisively bearish.

Of course this negative internal condition can, and most likely will, be reversed
on a short-term basis. We're entering a favorable timeframe for equities seasonally
(December-January) and a year-end rally isn't out of the question. The investor
sentiment poll released last Thursday by the American Association of Individual
Investors (AAII) showed the percentage of their members who are bullish were
only 29 percent, while 49 percent were bearish. This net bearish reading is
one of the highest in two years and suggests, from a contrarian standpoint,
a short-term market bottom.

But what separates a normal, healthy market from the environment we're now
entering on a longer term basis is that the rallies will likely not be sustainable
beyond a few weeks. The main trend for 2013, in contrast to the past year,
will likely be down. This is especially true with the final "hard down" phase
of the 40-year and 60-year Kress cycles upon us in 2013 and 2014.

Gold ETF

Our preferred gold ETF, the iShares Gold Trust (IAU), hasn't yet confirmed
a buy signal according to the rules of our trading discipline, but it has begun
to show significant relative strength. Consider the following graph which shows
the meaningful spike in the gold ETF's relative strength in just the last few
days. In most cases, a spike in the relative strength line precedes an upside
move in the IAU. Accordingly we should soon have a confirmed immediate-term
buy signal for the gold ETF.

2014: America's Date With Destiny

Take a journey into the future with me as we discover what the
future may unfold in the fateful period leading up to - and following - the
120-year cycle bottom in late 2014.

Picking up where I left off in my previous work, The Stock
Market Cycles, I expand on the Kress cycle narrative and explain how
the 120-year Mega cycle influences the market, the economy and other aspects
of American life and culture. My latest book, 2014: America's Date With
Destiny, examines the most vital issues facing America and the global
economy in the 2-3 years ahead.

The new book explains that the credit crisis of 2008 was merely
the prelude in an intensifying global credit storm. If the basis for my prediction
continue true to form - namely the long-term Kress cycles - the worst part
of the crisis lies ahead in the years 2013-2014. The book is now available
for sale at:http://www.clifdroke.com/books/destiny.html

Order today to receive your autographed copy and a FREE 1-month
trial subscription to the Gold & Silver Stock Report newsletter. Published
twice each week, the newsletter uses the method described in this book for
making profitable trades among the actively traded gold mining shares.

Clif Droke is the editor of Gold & Silver Stock Report, published
each Tuesday and Thursday. He is also the author of numerous books, including
most recently, "Gold & Gold Stock Trading Simplified." For more information
visit www.clifdroke.com

Clif Droke is the editor of the two times weekly Momentum Strategies Report
newsletter, published since 1997, which covers U.S. equity markets and various
stock sectors, natural resources, money supply and bank credit trends, the
dollar and the U.S. economy. The forecasts are made using a unique proprietary
blend of analytical methods involving cycles, internal momentum and moving
average systems, as well as investor sentiment. He is also the author of numerous
books, including most recently "The Stock Market Cycles." For more information
visit www.clifdroke.com